The Original Equipment Supplier Assn.'s (OESA) January 2011 Automotive Supplier Barometer Outlook index jumped to 71 from a level of 61 in the November 2010 survey. This is just two points less than the 73 Supplier Barometer Outlook index in January 2010. It appears that the outlook is always brightest in January. In fact, the see-saw pattern than plagued 2010 finally broke with the January index, as the responses shifted significantly from "unchanged" to "somewhat more optimistic," pushing the index higher, said the OESA's report.
Comments on the general 12-month outlook for suppliers feeling this optimism, while a good sign, also shows hints of caution. "Clearly, 2011 will be a recovery year, but 12 million- to 13 million-unit North American production is far less than glory years in early to mid-2000s," said one respondent. Another noted, "I do think . . . that the recovery is still a gradual one."
Supplier business failures are still on the minds of many. "Seems to be a tremendous amount of takeover sales, but most of it is coming on the heels of another supplier's failure."
This "somewhat more optimistic" outlook was true for companies of all sizes. However, while confidence seems to be increasing with 2011 production volume forecasts from the automotive OEMs, there are "significant concerns in the operating environment." One respondent commented, "Volumes are increasing. However, so are raw material prices, foreign exchange rate risk, and OEM giveback pressures."
That comment seems to indicate that, while previous comments came from OEMs about a "kinder, gentler" attitude toward their suppliers, in reality it's the same game, different year.
Consolidation continues through the whole supply chain, commented the OESA, with 20% of respondents reporting that they have a "formal supply chain reduction metric." The average targeted reduction is 5%, with the top end of the range being 10%.
Credit markets appear to continue opening up for suppliers, but the "eased somewhat" response is a "solid second place" vs. the "tightening" reported in January 2010. "The survey indicates that improvements are being seen through the chain to small suppliers (albeit the base comparisons were the tightest with small suppliers)," the report noted.
When asked about the issues that have plagued suppliers over the past three months, 61% said "raw material shortages"; paying production overtime premiums was cited by 78% of the respondents; 62% said "skilled labor shortages"; 68% noted component shortages; 74% said "inbound expedited freight" was a big issue; and 69% said "outbound expedited freight" was an issue.
The outlook for the next three months isn't much better, with 61% noting "raw material shortages" as an issue; 70% citing "paying production overtime premiums"; 56% saying that "skilled labor shortages" will continue to be an issue; and 59% and 53% respectively say that "inbound/outbound expedited freight" will be an issue.
So what steps are suppliers taking to mitigate these issues? Hiring was a big one, as it was mentioned by an overwhelming number of respondents. Companies are on the hunt for "good people" and mostly "skilled people." Some noted they have converted temps to permanent employees.
Supply chain management is getting more attention as volumes increase. One respondent said they are "pushing back steel premiums to customers that control blanket POs even though they would like us to eat it." This get-tough attitude among suppliers with their supply chains seemed to permeate the attitudes of respondents.
Production planning is critical to suppliers as OEMs project increased volumes. Many cut back during the past two years, and ramping up has its challenges. Some of the steps suppliers are taking include "shifting production from one plant to another," "increasing capacity," "closely monitoring suppliers, investigating alternate materials, expanding supply base for critical raw materials and components," "adding machine capacity," performing "capacity studies with component suppliers," and "upgrading ERP software" to help with planning.
Adding capacity was mentioned often, including starting up idled capacity, expanding capacity, and increasing capacity by purchasing new capital equipment. That's all good news for machinery and equipment makers. With projections like that, it should be a good year for sales.
Engineering steps that many suppliers are taking include finding material substitutions for raw materials that are in short supply, or finding new/additional suppliers for raw materials so they are not dependent on a single source. Along with that is the step of ensuring contract commitments with raw material vendors.
Supplier resourcing is also on the top of the list as these respondents develop alternate sources for critical materials and components. "We are shifting our spend to vendors who can better react to the volatile demand patterns," said one respondent. "This has become as important as the cost of the goods." Other respondents said they are "resourcing parts, recommissioning smaller, previously PPAPed tooling," and performing "some Tier Two resourcing." (Take note molders and moldmakers!) But the good news: "Less Asia sourcing."
Purchasing initiatives include "making sure suppliers at a minimum have TS certifications"; "increasing supplier development areas of purchasing"; "qualifying new and additional suppliers"; "implementing blanket orders, increasing percent of outsourcing"; and, one that has become more critical to big OEMs and Tier One suppliers as they seek to mitigate risk with their supply chain,"Identify in the supply chain, companies with financial problems and make risk assessments."
No one ever said being an automotive supplier was easy, and while some things have changed, automotive continues to be a challenging market to serve. Paying attention to these Supplier Barometers from the OESA might help make life easier for molders and moldmakers.-Clare Goldsberry